star­tups-make or Break

Why some star­tups suc­ceed and oth­ers fail? A ques­tion ev­ery wannabe to sea­soned en­trepreneurs to VCs ask of­ten times. The an­swer is not that sim­ple, a com­bi­na­tion of fac­tors make a startup or break it

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An old adage might serve as an in­spi­ra­tion for all the star­tups. It says, “Rise and rises again un­til lambs be­come lions”. As al­ways, feel­good quotes are like sugar quoted pills – once the mo­ti­va­tional sugar dis­solves, the re­al­i­ties kick in. The last cou­ple of years, the en­tre­pre­neur­ial bug has hit the In­dian shores big time. Buoyed by the eCom boom the air is rid­dled with star­tups, but a good deal of start-ups just cre­ates a buzz and goes into obliv­ion. While we see en­thu­si­as­tic de­bates and con­ver­sa­tions from both the Govern­ment and the VC com­mu­nity, time is now for us to ask the crit­i­cal ques­tion- why some star­tups fail and some suc­ceed? START­ING PROB­LEMS At the fun­da­men­tal level, a broader an­swer would border

on per­spec­tives like a failed startup trac­ing its eti­ol­ogy to the founders’ in­abil­ity to draw up a short-term and longterm sus­te­nance road map or a lack of vi­sion and mis­sion state­ment. For in­stance, we have heard sto­ries of many star­tups fiz­zling out in just 12 months, ei­ther los­ing the ini­tial cap­i­tal pooled in by founders or los­ing the in­vestor con­fi­dence.

Quips Ra­jeev Agrawal, CEO, In­noviti Pay­ment So­lu­tions, “In my opin­ion, the two most im­por­tant at­tributes that de­fine star­tups suc­cess re­lates to fo­cus on gross mar­gins and cus­tomer ori­en­ta­tion. Ir­re­spec­tive of the size or the quan­tum of fund­ing, if the busi­ness model does not fac­tor in the gross mar­gin, then it’s a flawed model. This is one area lot of en­trepreneurs miss out on. Sec­ond, one need to have a solid cus­tomer ori­en­ta­tion, any dis­con­nects here will not au­gur well.”

A Deal Street Asia ob­ser­va­tion some­time back said, “There is hardly any sys­temic data on star­tups in terms of how well they are do­ing and how do they com­pare”. What it leads to is the lack of suc­cess bench­marks or one is con­strained when it comes to the ap­praisal of the star­tups for lack of key mea­sure­ment pa­ram­e­ters.

A Let­sVen­ture- Ax­ilor sur­vey (a sur­vey was done with 532 early stage star­tups — between 18 to 24 months old) re­vealed that “75% of star­tups that are still in ideation or beta, be­lieve that fund­ing is a pri­mary chal­lenge when they should ac­tu­ally be spend­ing time on cus­tomer val­i­da­tion. About 80% said a fund­ing round would be a ma­jor mile­stone, again show­ing an over­sized fo­cus on funds be­fore they’re ready for it.”

More per­plex­ing is that the sur­vey pointed out: “About 70% of founders said they founded a startup be­cause they thought it was an in­ter­est­ing idea or they had a prob­lem or knew some­one who had a prob­lem that needed to be

In my opin­ion, the two most im­por­tant at­tributes that de­fine star­tups suc­cess re­lates to fo­cus on gross mar­gins and cus­tomer ori­en­ta­tion. Ir­re­spec­tive of the size or the quan­tum of fund­ing, if the busi­ness model does not fac­tor in the above, then it’s a flawed model. — Ra­jeev Agrawal, CEO, In­noviti Pay­ment So­lu­tions

More than 90% star­tups in In­dia fail in their first 5 years. Lack of pi­o­neer­ing in­no­va­tion (77%) is the top­most rea­son for the fail­ure of most In­dian star­tups

If I pon­der over the ques­tion - Why some fail, one of the ma­jor rea­sons why star­tups fail is be­cause there is no mar­ket need or the prod­uct is mist­imed. Poor cus­tomer de­mand means that sus­te­nance be­comes a ma­jor chal­lenge. — Sriv­idya Kan­nan, Founder, Di­rec­tor, Avaali So­lu­tions

solved, with­out prior ex­pe­ri­ence of startup op­er­a­tions. Just 18% of founders said they had worked on a sim­i­lar prob­lem be­fore.”

Sriv­idya Kan­nan, Founder, Di­rec­tor, Avaali So­lu­tions says. “If you look at the suc­cess fac­tors, the key thing is about value. Star­tups are all about adding value to the cus­tomer ei­ther in the form of solv­ing a cur­rent or likely prob­lem or driv­ing ex­pe­ri­ences. Test­ing and val­i­dat­ing via cus­tomer adop­tion early-on is, there­fore, a crit­i­cal suc­cess fac­tor. Star­tups that suc­ceed, fo­cus on cus­tomer on-board­ing early in their cy­cle vs. say sim­ply fo­cus­ing on rais­ing funds and then test­ing wa­ters. An­other sine qua non is to on­board a great team who are pas­sion­ate about the story and drive busi­ness and cus­tomer sat­is­fac­tion very vig­or­ously. Man­ag­ing fi­nances is equally im­por­tant – en­sur­ing that the bal­ance between costs and rev­enues

is al­ways tilted pos­i­tively is very im­por­tant. This means keep­ing a close eye on cash flows as well as prof­itabil­ity.

“If I pon­der over the ques­tion - Why some fail, one of the ma­jor rea­sons why star­tups fail is be­cause there is no mar­ket need or the prod­uct is mist­imed. Poor cus­tomer de­mand means that sus­te­nance be­comes a ma­jor chal­lenge. Some other fac­tors in­clude not hav­ing the right team, run­ning out of cash and lack of a sound mon­e­ti­za­tion strat­egy, “adds Kan­nan.

WHEN THE RUB­BER MEETS THE ROAD

A lot of fac­tors con­trib­ute to a star­tups suc­cess. An in­ter­est­ing IBM Study ti­tled “En­tre­pre­neur­ial In­dia’ last year re­vealed some in­ter­est­ing in­sights. This en­tre­pre­neur­ial study con­ducted by the IBM In­sti­tute for Busi­ness Value (IBV) based on a sur­vey done in col­lab­o­ra­tion with Ox­ford Eco­nom­ics, to un­der­stand the rapidly evolv­ing In­dia startup ecosys­tem and its ef­fects on the wider econ­omy. The re­sults re­vealed that star­tups can ex­ploit a range of at­tributes and ad­van­tages unique to In­dia. More than 76% of In­dian ex­ec­u­tives pointed to In­dia’s eco­nomic open­ness as a ma­jor busi­ness ad­van­tage, while 60% iden­ti­fied In­dia’s skilled work­force and 57% of the ex­ec­u­tives said that In­dia’s large do­mes­tic mar­ket pro­vides sig­nif­i­cant ad­van­tages.

The Key find­ings of the sur­vey re­vealed that more than 90% star­tups in In­dia fail in their first 5 years. Lack of pi­o­neer­ing in­no­va­tion (77%) is the top­most rea­son for the fail­ure of most In­dian star­tups. In­dia’s eco­nomic open­ness (76%), skilled work­force (60%) and large do­mes­tic mar­ket (57%) seen as ma­jor busi­ness ad­van­tages for star­tups. Around 73% of In­dian busi­ness lead­ers sur­veyed be­lieve that ecosys­tems can help ac­cel­er­ate in­no­va­tion.Al­most 80% of ex­ec­u­tives from es­tab­lished com­pa­nies say col­lab­o­ra­tion with star­tups ac­cel­er­ates new ideas Stake­hold­ers’ (es­tab­lished busi­nesses, star­tups, VCs, Govern­ment, Higher ed­u­ca­tion) in­volve­ment and con­tri­bu­tion is key to cre­at­ing a con­ducive en­vi­ron­ment for the suc­cess of startup econ­omy The IBM study is based on in­ter­views with more than 1,300 In­dian ex­ec­u­tives, in­clud­ing 600 startup en­trepreneurs, 100 ven­ture cap­i­tal­ists, 100 govern­ment lead­ers, 500 lead­ers of es­tab­lished com­pa­nies and 22 ed­u­ca­tional in­sti­tu­tion lead­ers to an­a­lyze the macro im­pact of star­tups on the eco­nomic growth of the coun­try. The study fur­ther fo­cuses on how more proac­tive en­gage­ment between startup and es­tab­lished or­ga­ni­za­tions can help star­tups har­den their busi­ness mod­els, ac­cel­er­ate growth and leapfrog into the big leagues while en­abling es­tab­lished com­pa­nies to share in the en­tre­pre­neur­ial spirit of in­no­va­tion and agility. Their mu­tual suc­cess will drive In­dia to­ward an ev­er­more dy­namic fu­ture. The study also said that the Startup ac­tiv­ity is driv­ing In­dia’s emerg­ing busi­ness ecosys­tems In­dia’s startup com­mu­nity is ex­pand­ing rapidly with a strong en­tre­pre­neur­ial cul­ture, es­pe­cially among mil­len­ni­als. Strong govern­ment pro­mo­tion of en­trepreneur­ship has strength­ened a rapidly evolv­ing startup cul­ture – a pro­posed re­duc­tion in cor­po­rate tax from 30% to 25% is ex­pected to fur­ther boost startup ac­tiv­ity. The study

fur­ther stated that mar­ket val­u­a­tion of In­dian star­tups has grown sig­nif­i­cantly over the past four years, with three times in­crease in startup in­vest­ment recorded in 2015. Ac­cord­ing to the study, ap­prox­i­mately 35% of star­tups are be­ing set up in tier two and tier three cities, thereby pro­mot­ing ac­cel­er­ated de­vel­op­ment and in­dus­tri­al­iza­tion of ru­ral and other less de­vel­oped ar­eas.

UP AHEAD

Clearly, the In­dian startup ecosys­tem is at an in­ter­sec­tion, the much-needed com­ing of age has to hap­pen- the boys to men tran­si­tion. The oft-re­peated clichéd suc­cess sto­ries like Flip­kart or OLA or Snapdeal or hand­ful of such ex­am­ples no longer hold good. They cashed in on the first round of op­por­tu­nity and lever­aged in on the early mover ad­van­tage and rock solid in­vestor con­fi­dence.

So as we gather the ran­dom pieces of failed and suc­cess sto­ries, we can say that the vi­sion and the mis­sion are lack­ing in many startup ven­tures that are bound to fail in time. And more­over, if the founders lack the multi-do­main ex­per­tise and de­pend on hires to jump­start their star­tups, they are ask­ing for trou­ble. For in­stance, if you are an app startup, founders must have hands-on ex­per­tise in cod­ing, sales, and mar­ket­ing. The founders are the vi­sion­ar­ies, who need to build the foun­da­tion brick by brick and cre­ate a solid struc­ture that seam­lessly meshes with one great idea into a well-knit busi­ness model that mon­e­tizes the whole idea.

Clearly, the In­dian startup ecosys­tem is at an in­ter­sec­tion, the much-needed com­ing of age has to hap­pen - the boys to men tran­si­tion. The oft-re­peated clichéd suc­cess sto­ries like Flip­kart or OLA or Snapdeal or hand­ful of such ex­am­ples no longer hold good

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